Sara Lee operates as a global manufacturer and marketer of brand-name packaged foods and household products. Their products are distributed in grocery stores, drug stores, and food-service outlets. In February 2005, the firm embarked on mission to centralize and streamline its organization. Several less profitable business segments and brands were divested. Although Sara Lee owns well-known brands such as Sara Lee, Hillshire Farms, and Jimmy Dean, its products are segmented, making it difficult to achieve pricing power. Sara Lee is also feeling the pressure of rising commodity costs and changes in consumer trends. Many industry analysts are skeptical as to whether the restructuring initiative and strategy shift will give way to positive results and market growth. In an attempt to determine the current and future state of Sara Lee’s economic environment the cash flow statement and bankruptcy prediction model will be reviewed as well as a fundamental, traditional, and technical analysis performed. The purpose of this report and its findings will be used to determine if the company is worthy of receiving funding from lending institutions and if their stock should be invested in and if so when.
A trend analysis is typically used in predicting future stock movements, it is also useful to analyze the earnings trends and compare these results to cash from operating activities.
Significant business divesture explains the reduction in sales revenue between 2005 & 2006; however the severe reduction in free cash flow raises concern. Cash is king and a lack there of causes liquidity concern and questions the ability of the company to remain operational. In an attempt to explain this cash limiting turn of events, the cash flow statement needs to be analyzed.
Cash Flow Analysis
SARA LEE CORP
Statement of Cash Flows
Net Income504,000 555,000 719,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation539,000 701,000 737,000 A
Property Plant and Equipment2,448,000 3,302,000 3,142,000 A Adjustments To Net Income-24,00053,000 302,000 B
Changes In Accounts Receivables18,000 -14,000-196,000C
Changes In Liabilities-389,000-106,000-281,000
Changes In Inventories-106,000108,000 23,000 D
Inventory1,050,000 2,492,000 2,694,000 D
Changes In Other Operating Activities-36,000-42,00015,000
Total Cash Flow From Operating Activities506,000 1,255,000 1,331,000 Investing Activities, Cash Flows Provided By or Used In
Investments663,000 - - F
Other Cash flows from Investing Activities434,000 990,000 305,000 G Long Term Investments- - - H
Total Cash Flows From Investing Activities568,000 365,000 -233,000I Financing Activities, Cash Flows Provided By or Used In
Sale Purchase of Stock-648,000-534,000-235,000J
Net Borrowings759,000 1,131,000 -516,000
Other Cash Flows from Financing Activities-650,000- - K
Total Cash Flows From Financing Activities-913,000-8,000-1,215,000L Effect Of Exchange Rate Changes128,000 86,000 -7,000M
Change In Cash and Cash Equivalents $289,000 $1,698,000 ($124,000)
Goodwill2,722,000 3,052,000 3,202,000 N
Intangible Assets1,037,000 1,185,000 1,679,000 O
**red items are imported from Balance Sheet for comparison purposes
Cash from Operating Activities:
A.Depreciation & Property Plant & Equipment: depreciation is less than PP&E, as it should, both PP&E and depreciation have decreased since 2005 due to business line divestitures. B.Adjustments to Net Income? The Balance sheet shows deferred long term assets charges of $310, which could relate to this positive cash flow adjustment. C.Changes in receivables, amount is...